7 Little-Known Secrets Driving Warren Buffett’s Success

Every investor needs these seven lesser-known pieces of advice from Warren Buffett on their radar.

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Updated May 28, 2024
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Warren Buffett’s name is one of the most recognized in the investing world. Everyone wants to replicate his success, so it’s not hard to find lists of his most memorable advice.

This advice usually includes investing in quality companies with missions you believe in, doing your own research instead of following the crowd, and avoiding losing money.

But some of Buffett’s most crucial investing advice is much less widely discussed. Here are some frequently overlooked techniques you can use to boost your bank account the Buffett way.

If you don’t believe your stock will last a lifetime, don’t buy it

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Warren Buffett doesn’t see investing as a get-rich-quick scheme. Instead, he only buys stock in companies he’s confident will still be around for a decade or more.

If you’re easily frustrated when a stock doesn’t yield immediate results, sell whenever the market fluctuates, or buy stocks just to flip them, you might need to reevaluate your strategy.

Patience is an investor’s highest virtue — and according to Buffett, playing the long game will get you further.

Know when to cut and run

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Investors might be more prone than most to the sunk-cost fallacy, which is the tendency to keep investing in a lost cause because you’ve already invested so much in it.

Of course, continuing to pour money into a lost cause simply magnifies your losses. According to Buffett, one of the most important investing skills you can develop is knowing when to accept a loss and move on.

This advice seems to directly contradict Buffett’s strategy of only investing in companies he thinks will last. But while Buffett is a firm believer in funding quality companies with great ideas, he can also acknowledge when he’s made a mistake.

Buffett has talked publicly about wishing he hadn’t invested in companies like Kraft-Heinz, Tesco, and even the company he currently owns, Berkshire Hathaway.

But just as crucial to making money is figuring out when you’re losing too much of it, then walking away toward a better investment. It’s one of the smartest ways to avoid financial stress as an investor.

Consider selling put options — but limit your risk

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Selling a put option involves you selling the right to someone to make you buy a stock at a specific price (strike price) and before a specific date (expiration date). Since you’re giving up flexibility as the seller, you are compensated in the form of fees.

Selling put options can be confusing if you don’t know much about the stock market, so talk to your financial advisor before using this strategy. Selling put options is also considered riskier than making a more straightforward investment.

Still, it’s a strategy that can pay off in a big way. (It certainly has for Buffett.) If you decide selling put options is right for you, it could help supplement revenue from your other investments.

Don’t overlook smaller companies with small-cap stocks

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It’s tempting to only invest in major companies. In fact, you probably should invest in at least some large-cap companies with a profitable history, like Apple. But Buffett also advises investors not to ignore smaller companies with lower revenue, a.k.a. companies with small-cap stocks.

Small-cap stocks are stocks in businesses with a market capitalization of up to $2 billion. In contrast, large-cap stocks are shares in companies with a market cap of at least $10 billion.

A higher profit for a company doesn’t necessarily mean a higher profit for investors. However, investing in small companies poised for growth is a smart money move and could result in a bigger payout if you’re one of the company’s early shareholders.

Get familiar with value investments

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If you were to summarize the foundation of Warren Buffett’s wealth in two words, it would have to be “value investing.”

Value stocks are stocks currently selling for less than their true value. In a year like 2022, value stocks are the name of the game. With the market dipping overall, even traditionally stable industries have seen their stocks lose value.

Investing in some of those stocks now — like Target or Pfizer — could be a smart decision. That’s because, in normal economic conditions, stable and mature companies like these can usually be counted on to make a profit and return value to shareholders over the long run.

Buffett also looks for companies with solid ideas and quality leadership, purchasing their stock with the hope that others will eventually recognize the company’s quality as well. If the stock goes up in value, value investors like Buffett reap an incredibly solid return.

Diversify — but don’t go overboard

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When you purchase just one type of stock or invest in one market sector only, a sudden market change can cause you to lose everything. In fact, this strategy is a reason why many seniors are throwing away money in retirement.

That’s why most financial advisors recommend creating a diverse portfolio with several types of investments, ranging from risky investments to stable bond purchases.

Buffett’s company, Berkshire Hathaway, still has a fairly diverse portfolio, but it’s much more static than most. For instance, Apple makes up a full 40% of Berkshire Hathaway’s equity portfolio.

While Berkshire Hathaway obviously owns stock in other companies, Apple’s solid, predictable return creates a solid base for Berkshire Hathaway to make other investments.

Don’t overreact to market changes

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The stock market fluctuates daily and even hourly. If you panic at every dip or jump to buy the most popular stock of the day, every day, it’ll be impossible to consistently grow your portfolio.

Instead of deciding whether to sell or hold based on the market’s current whims, follow Buffett’s advice and do your research. Then, you can invest in a quality company with a strategy and leadership you trust.

Bottom line

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It takes the perfect combination of luck, logic, and skill to end up as successful as Warren Buffett. Even if you followed Buffett’s advice word for word, there’s no guarantee you’ll bring in rewards as vast as his.

Still, the more you know about Buffett’s strategies, the greater your odds of putting together a portfolio that carries you into retirement. You might even be able to plan to retire early.

So, along with Buffett’s best-known pieces of advice, make sure you incorporate these lesser-known ones as well.


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Author Details

Michelle Smith

Michelle Smith has spent a decade writing for and about small businesses. She specializes in all things finance and has written for publications like G2 and SmallBizDaily. When she's not writing for work at her desk, you can usually find her writing for pleasure near large bodies of water.